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GST Proceedings Against Dead Person Void, Allows Fresh Action Against Legal Heir
In a significant ruling on the validity of tax proceedings initiated after a taxpayer’s death, the has quashed a GST demand of ₹28.49 lakh issued against a deceased proprietor, holding that such proceedings are void from the outset. A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati, however, permitted the tax department to initiate fresh proceedings against the legal heir in accordance with law.
Death of a Taxpayer: A Void Initiation
The case involved Kalpeshbhai Ramubhai Patni, who operated a proprietorship business under the name Shivam Trading Co. He tragically passed away due to Covid-19 on at the age of 37. Following his death, the GST registration of the proprietorship was cancelled on , with nil demand assessed due to non-filing of returns for over six months.
Nearly three years later, on , the State Tax Officer issued a pre-show cause notice intimation under (GGST Act) to the deceased proprietor, proposing a tax liability of ₹28,49,906 for the financial year 2020-21, along with interest and penalty. A formal show cause notice under Section 73(1) followed on , and eventually a demand order was passed on confirming the proposed dues.
The petitioner, Ushaben Kalpeshbhai Patni, the wife and legal heir of the deceased, was completely unaware of these proceedings. She learned of them only after a consultant handling the business’s GST returns informed her that the notices and order had been uploaded on the GSTN portal.
A Housewife Unaware of GST Portal Proceedings
Ushaben Patni approached the High Court contending that the entire proceedings were a because they had been initiated and conducted in the name of a person who had died years earlier. She argued that as a housewife with no involvement in her husband’s business, she had no knowledge of the GST portal or the notices issued there.
The tax department opposed the petition, submitting that it had issued three subsequent notices on , , and , and had even affixed notices at the business premises. It claimed it was unaware of the taxpayer’s death when the initial proceedings began.
The Court’s Verdict: Proceedings Quashed, Fresh Action Permitted
The Division Bench found that the fundamental defect of initiating proceedings against a dead person could not be cured by the department’s lack of knowledge. The court observed:
“It is true that the respondent authority was not aware about the death of the husband of the petitioner, who was connected with the business activities of the proprietorship. However, the petitioner, being a housewife, was not even remotely connected with the business and was unaware of the niceties of the GSTN portal.”
The court further noted that the petitioner had not continued the deceased’s business and had not been brought into the proceedings as the person against whom the department sought to recover the outstanding liability. The mere continuation of proceedings through the GST portal in the name of the deceased could not cure this fundamental defect.
Key Observations
The court underscored the distinction between the underlying tax liability and the validity of the recovery proceedings:
“Thus, in wake of the aforesaid facts, since the proceedings are initiated against the dead person, we quash and set aside the show cause notices as well as the impugned orders passed thereafter with a clarification that it will be open for the respondent to initiate proper proceedings in accordance with law against the petitioner for the outstanding demand.”
Decision and Implications
The High Court allowed the petition, quashing the show cause notices and the demand order dated . Importantly, the court clarified that this does not extinguish the tax liability itself; the department is free to initiate proper proceedings against Ushaben Patni as the legal heir, following due process and providing her a meaningful opportunity to respond.
This judgment reinforces the principle that tax proceedings must be initiated against a living person and that the legal heir cannot be held liable for demands arising from proceedings that were . It serves as a reminder to tax authorities to verify the status of a taxpayer before issuing notices, particularly when there has been a significant time gap since the taxpayer’s last known activity.
The petition was allowed with no order as to costs, and the rule was made absolute.
